Federal Reserve What Does the Essay

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What are areas of comparative advantage of the United States and its trading partner? What are the benefits and disadvantages specific to this free trade agreement?

The country that was selected which has a trading agreement with the United States is Mexico. The biggest advantages that this is providing to everyone are: increased exports. According to the Office of the U.S. Trade Representative, this is resulting in a sharp rise in sales for the following products including: vehicle parts ($56.7 billion), machinery ($63.3 billion), electrical machinery ($56.2 billion) mineral fuel / oil ($26.7 billion), plastics ($22.6 billion), grains ($2.2 million), red meats ($2.7 billion), fruits ($1.9 billion), vegetables ($1.8 billion) and private commercial services ($63.8 billion). These areas are offering competitive advantages for both countries. This is because they are reducing the costs that consumers have to pay for a host of products and services. ("North American Free Trade Agreement," 2013)

The benefits are that wholesale and retail prices are more stable from this kind of agreement. This helps to create economic growth by reducing inflation and allowing consumers to spend more money in other areas.
At the same time, this is increasing the standard of living in countries such as Mexico. This is because many different firms will establish operations inside these locations from the low costs of labor. Over the course of time, this will help Mexico to expand the middle class and improve its standard of living. ("North American Free Trade Agreement," 2013)

The disadvantages are that many established industries in the U.S. are outsourcing jobs to these locations. This creates a situation where many cities will experience rising levels of unemployment and economic blight. When this happens, more people will be forced to go to other locations where there are higher paying jobs. This has negative effects on cities such as Detroit. As they will have trouble adjusting with these changes and attracting new industry in order to keep higher paying jobs inside these locations. In the future, this places more pressure on local governments to maintain traditional services from a declining revenue base. ("North American Free Trade Agreement," 2013) ("The Abandoned City of Detroit," 2012).....

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